Mortgage modification or Loan Modification is the practice of changing the original terms of the contract between the lender or borrower, most often due to some sort of hardship on the part of the borrower or a change in business practices or methods of the lender.  For the most part, this process can be done to any loan in existence.  When the normal advancement of a mortgage loan, the interest rate defines the long-term payment of the interest in addition to the principal. Usually until the mortgage is paid, the lender owns the property pledged, and if the borrower sells the property before the mortgage is paid, the bank takes the portion of the proceeds that reflecting the remaining balance of the loan. Normally apart from ARM or Adjustable Rate Mortgage loans, loans are set on fixed terms (rate and payment) for the life of a loan. However, a modification of the term is possible based on borrowers who meet specific criteria or via government mandate as was recently done to help the extreme downward trend of the housing market and the accompanied U.S. economy and market woes.

There are a few different types of loan modifcations, such as:

• Reduction in Principal
• Reduction in Late Fees or Penalties
• Lengthening of Loan Term
• Mortgage Forbearance (Temporary halt of payments)
• Reduction of Interest Rate, or Change of Adjustable to Fixed
• Capping of Monthly Payment Based on Income

Loan Modifications are often at the discretion of the lender, or as mentioned the government. A loan can be in bankruptcy, current, in default or even in foreclosure at the time of a modification. Don’t be discourage however, as a lender main goal is get some form of repayment. A loan modification means they will be able to recover at least a portion of the loan and remove themselves from the cost of foreclosure, and trying to resell the home.